NEW YORK, July 29, 2004 (PRIMEZONE) -- Overseas Shipholding Group, Inc. (NYSE:OSG) reported record net income for the first six months of 2004 of $121,592,000, or $3.13 per share, an increase of 41% compared with net income of $86,075,000, or $2.50 per share, for the first half of 2003. EBITDA for the first six months rose to $270,007,000 from $192,351,000 in the first six months of 2003. Net income for the first six months of 2004 exceeded net income for the full year 2003 of $121,309,000, which was the highest annual net income in the Company's history.
Net income for the quarter ended June 30, 2004 of $45,404,000, or $1.15 per share, compared with net income of $41,840,000, or $1.21 per share, in the second quarter of 2003. EBITDA for the second quarter rose to $113,594,000 from $98,135,000 in the second quarter of 2003 (see Appendix 2).
"I am pleased to announce that OSG has extended its run of consecutive record earnings announcements with the highest second quarter income and the highest first half income in the Company's history," said Morten Arntzen, President and Chief Executive Officer of OSG. "The continuing strong demand for tankers, principally as a result of growing world crude oil demand, has resulted in tanker rates remaining at very high levels through the beginning of the third quarter, traditionally a seasonally weak period for the industry.
"Our strategic initiative to grow the Company has initially focused on our core Crude and U.S. Flag sectors. The integration of the four ULCCs was completed this week under the commercial management of Tankers International. By developing new trades for these vessels and building on our worldwide VLCC network, we will seek to generate increased utilization and superior earnings for these high quality vessels. The seven VLCCs and two Aframaxes that we committed to charter in during the first six months will allow us to enjoy greater exposure to this buoyant tanker market with VLCC/ULCC revenue days increasing by 15% in the second half of the year compared with the first half. In the U. S. Flag sector, the two Product Carriers we purchased in April add to our presence in the U.S. market and increase our core level of earnings from this sector.
"In addition to building scale in our core Crude, U.S. Flag and Product Carrier sectors, we are considering opportunities in other bulk shipping segments, such as chemical parcel tankers and LNG. The Company remains firmly committed to disciplined and intelligent growth."
Highlights
Operations
-- In July, a joint venture in which OSG holds a 49.9% interest took
delivery of four 442,000 dwt Ultra Large Crude Carriers ("ULCCs")
built in 2002 and 2003. These unique vessels, designed and built
for a 40-year life expectancy, can each transport 3.2 million
barrels of crude oil and are the only double hull ULCCs in the
world.
-- In April, OSG acquired two 51,000 dwt U.S. Flag Jones Act Product
Carriers, built in 1982 and 1983. These vessels are fixed on
bareboat charters to an oil major.
-- In June, the Company agreed to sell the Olympia, a 1990 built
single hull VLCC, taking advantage of high second hand vessel
prices and further reducing the average age of the Company's VLCC
fleet. At almost $40 million, we believe this is the highest
price ever paid for a VLCC of this age, generating a $12.4 million
gain that will be recognized in the third quarter.
-- In June, the final vessels in OSG's fleet received International
Ship Security Certificates, in advance of the mandatory
implementation date.
Finance
-- With fixed charges for the six months ended June 30, 2004 of
$38,716,000 and EBITDA of $270,007,000, EBITDA/Fixed Charges ratio
was 7.0 compared with a ratio of 5.9 for the six months ended June
30, 2003.
-- In July, OSG closed a $100 million, seven-year unsecured revolving
credit facility, resulting in liquidity of over $1 billion.
VLCC Sector
During the second quarter, rates for modern VLCCs trading out of the Arabian Gulf averaged $64,500 per day, 14% less than the previous quarter, but 62% more than the average rate for the corresponding quarter in 2003. Global oil demand in the second quarter of 2004 was estimated by the International Energy Agency ("IEA") at 80.4 million barrels per day ("b/d"), a decrease of 1.4% from the previous quarter, but 5.2% higher than the comparable quarter in 2003. Chinese oil demand surged to an estimated 6.4 million b/d in the second quarter of 2004, 23.2% higher than the comparable quarter of 2003. Additionally, continued rising gasoline consumption helped push U.S. oil demand to 20.5 million b/d, up 4.1% relative to the second quarter of 2003. These factors more than offset a decline in Japanese oil demand attributable to the reactivation of previously idled nuclear power generation capacity. The upturn in VLCC spot freight rates that began in April 2004 was largely due to a boost in Arabian Gulf cargoes from OPEC countries and continued disruptions to Iraqi exports via the northern pipeline to Ceyhan in the Mediterranean. Middle East OPEC production rose counter seasonally to 20.0 million b/d in the second quarter from 19.8 million b/d in the first quarter in response to sharply higher oil prices. During the second quarter of 2004, estimated OPEC production exceeded quotas by more than 10%.
The world VLCC fleet grew to 439 vessels (127.4 million dwt) at June 30, 2004 from 433 vessels (126.1 million dwt) at the start of 2004. Newbuilding orders placed during the first six months of 2004 totaled 26 vessels (7.9 million dwt) compared with 51 vessels (15.5 million dwt) for the full year 2003. The orderbook expanded to 89 vessels (27.2 million dwt) at June 30, 2004, equivalent to 21.3%, based on deadweight tons, of the existing VLCC fleet.
Aframax Sector
During the second quarter of 2004, rates for Aframaxes operating in the Caribbean trades averaged $26,400 per day, 44% lower than the previous quarter and 14% lower than the corresponding quarter in 2003. Total non-OPEC oil production for the second quarter of 2004 was estimated at 49.7 million b/d, 3.3% higher than the corresponding quarter in 2003. More than 60% of this growth was generated by the Former Soviet Union ("FSU"). Seaborne oil exports from the FSU in the second quarter of 2004 were estimated at 5.9 million b/d, 5.8% higher than the comparable quarter in 2003.
Weather related congestion and delays in both the Baltic and Black Sea trading areas that bolstered freight rates in the first quarter were largely resolved by the start of the second quarter. This resulted in increased availability of suitable tonnage and an easing in rates. Venezuelan crude oil production remained at just above the 2 million b/d level, down 4.4% from the second quarter of 2003 and well below the levels attained prior to the political turmoil of the past year-and-a-half.
The world Aframax fleet increased to 615 vessels (61.0 million dwt) at June 30, 2004 from 601 vessels (59.2 million dwt) at the start of 2004, as Aframax deliveries from shipyards exceeded deletions. Newbuilding orders placed during the first six months of 2004 totaled 35 vessels (3.9 million dwt) compared with 99 vessels (10.6 million dwt) during the full year 2003. The orderbook increased to 160 vessels (17.4 million dwt) at June 30, 2004, equivalent to 28.4%, based on deadweight tons, of the existing Aframax fleet.
Financial Profile
On July 23, OSG closed an unsecured revolving credit facility of $100 million. This new facility, priced at a highly competitive margin, has a term of seven years. The Company has also renegotiated certain of its secured credit facilities, reducing margins, extending terms and increasing advance levels.
With shareholders' equity of $1.15 billion as of June 30, 2004 and $1 billion of liquidity, including undrawn credit facilities, the Company believes its financial flexibility and strength distinguish OSG from most of its competitors.
With one of the most modern VLCC and Aframax fleets in the industry, substantial liquidity and proven access to alternative sources of capital, the Company is unusually well positioned to take advantage of market opportunities as they present themselves.
OSG Fleet Profile
OSG is one of the largest tanker owners in the world and the leading U.S. based tanker company, with customers that include many of the world's largest oil companies. During the second quarter of 2004, OSG purchased two U.S. Flag Product Carriers and charters-in on three VLCCs commenced. At June 30, 2004, OSG's fleet comprised 58 vessels totaling 9,890,822 dwt, including 15 vessels owned by joint ventures or chartered in under operating leases. Adjusted for OSG's proportional interest in joint venture and chartered in vessels, the fleet totals 51.8 vessels totaling 8,347,072 dwt.
At June 30, 2004, the Company's VLCC fleet, had an average age of 5.9 years compared with a world VLCC fleet average age of 8.2 years. OSG's Aframax fleet had an average age of 6.4 years compared with a world Aframax fleet average age of 9.8 years.
Appendix 1
The following table presents comparative per share amounts for
net income, adjusted for the effects of vessel sales and
securities transactions, including write-downs in the carrying
value of certain securities pursuant to FAS115:
Three Months Ended Six Months Ended
June 30, June 30,
-------------- --------------
2004 2003 2004 2003
----- ----- ----- -----
Net Income $1.15 $1.21 $3.13 $2.50
(Gain)/Loss on Vessel Sales -- -- (0.05) 0.02
(Gain) on Securities Transactions (0.01) (0.06) (0.12) (0.10)
----- ----- ----- -----
$1.14 $1.15 $2.96 $2.42
===== ===== ===== =====
Note: Net income adjusted for the effect of vessel sales and
securities transactions is presented to provide additional
information with respect to the Company's ability to compare from
period to period vessel operating revenues and expenses and
general and administrative expenses without gains and losses from
disposals of assets and investments. While net income adjusted
for the effect of vessel sales and securities transactions is
frequently used by management as a measure of the vessels
operating performance in a particular period it is not
necessarily comparable to other similarly titled captions of
other companies due to differences in methods of calculation.
Net income adjusted for the effect of vessel sales and securities
transactions should not be considered an alternative to net
income or other measurements under generally accepted accounting
principles.
Appendix 2
Reconciliation of net income, as reflected in the condensed
consolidated statements of operations, to EBITDA:
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
($000) 2004 2003 2004 2003
-------- -------- -------- --------
Net income $ 45,404 $ 41,840 $121,592 $ 86,075
Provision for federal
income taxes 23,900 18,300 62,400 34,311
Interest expense 18,859 15,412 36,374 28,562
Depreciation and
amortization 25,431 22,583 49,641 43,403
-------- -------- -------- --------
EBITDA $113,594 $ 98,135 $270,007 $192,351
======== ======== ======== ========
Note: EBITDA should not be considered a substitute for net
income, cash flow from operating activities and other operations
or cash flow statement data prepared in accordance with
accounting principles generally accepted in the United States or
as a measure of profitability or liquidity. EBITDA is presented
to provide additional information with respect to the Company's
ability to satisfy debt service, capital expenditure and working
capital requirements. While EBITDA is frequently used as a
measure of operating results and the ability to meet debt service
requirements, it is not necessarily comparable to other similarly
titled captions of other companies due to differences in methods
of calculation.
Appendix 3
Table shows time charter equivalent revenues per day and revenue
days (defined as ship operating days less lay-up, repair and
drydock days) for the Company's principal foreign flag segments
for the second quarter and first half of 2004 compared with the
same periods of 2003:
Three Months Ended Six Months Ended
June 30, June 30,
----------------- -----------------
2004 2003 2004 2003
------- ------- ------- -------
VLCC
Average TCE Rate $57,163 $48,001 $65,464 $50,328
Number of Revenue Days 1,557 1,200 3,023 2,250
AFRAMAX
Average TCE rate $28,995 $28,203 $32,626 $30,617
Number of Revenue days 1,207 1,001 2,349 1,959
PRODUCT CARRIER
Average TCE Rate $16,967 $17,660 $18,149 $16,701
Number of Revenue Days 514 546 997 1,225
VLCC revenue days are expected to increase to 1,601 days in the third
quarter of 2004 and 1,597 in the fourth quarter of 2004.
Appendix 4
Equity in Income of Joint Venture Vessels
The following is a summary of the Company's interest in its
foreign flag joint ventures. Revenue days are adjusted for OSG's
percentage ownership in order to state the days on a basis
comparable to that of wholly-owned vessels:
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------
2004 2003 2004 2003
---------- ---------- ---------- -----------
VLCC
Equity in Income $1,103,000 $5,734,000 $2,710,000 $15,469,000
Number of
Revenue Days 27 282 80 639
AFRAMAX
Equity in Income $ 745,000 $ 813,000 $1,802,000 $ 1,854,000
Number of
Revenue days 46 45 91 90
During the first quarter the Company concluded an agreement with
a joint venture partner equally splitting the ownership of three
pairs of sister vessels between the two partners, with OSG
becoming the 100% owner of the VLCCs, Dundee, Sakura I and
Tanabe. The results of these vessels are now included in the VLCC
segment. In July 2004, a joint venture in which OSG has a 49.9%
interest took delivery of four ULCCs.
The proportional share of revenue days for VLCCs/ULCCs are expected
to increase to 167 days in the third quarter of 2004 and 212 days
in the fourth quarter of 2004.
Appendix 5
Summary of the Company's foreign and domestic flag fleets as of
June 30, 2004:
---------------------------------------------------------------------
Number of Vessels Dwt
---------------------------------------------------------------------
By By
Type Total % Interest Total % Interest
---------------------------------------------------------------------
Foreign Flag Fleet:
VLCC:
100% owned 15 15.0 4,570,358 4,570,358
Owned jointly with
others 1 0.3 259,995 77,999
Time chartered in 7 3.0 2,109,771 901,892
Suezmax 1 1.0 147,501 147,501
Aframax:
100% owned 13 13.0 1,354,911 1,354,911
Owned jointly with
others 1 0.5 97,078 48,539
Time chartered in 2 1.0 210,674 105,338
Product Carrier 6 6.0 287,934 287,934
Capesize Bulk Carrier:
Time chartered in 2 2.0 319,843 319,843
U.S. Flag Fleet:
Crude Tanker 3 3.0 275,904 275,904
Product Carrier 4 4.0 188,810 188,810
Bulk Carrier, bareboat
chartered in 2 2.0 51,902 51,902
Car Carrier 1 1.0 16,141 16,141
---------------------------------------------------------------------
TOTAL 58 51.8 9,890,822 8,347,072
---------------------------------------------------------------------
Appendix 6
Summary Consolidated Statements of Operations
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
($000) 2004 2003(a) 2004 2003(a)
----------- ----------- ----------- -----------
Time Charter
Equivalent
Revenues $ 157,061 $ 120,297 $ 346,043 $ 241,427
----------- ----------- ----------- -----------
Running Expenses
(including time
charter hire and
depreciation) 64,577 49,823 121,897 98,213
General &
Administrative 9,406 7,860 23,200 18,533
----------- ----------- ----------- -----------
Total Ship
Operating
Expenses 73,983 57,683 145,097 116,746
----------- ----------- ----------- -----------
Income from
Vessel
Operations
(100% owned) 83,078 62,614 200,946 124,681
Equity in Income
from Joint
Ventures 3,018 8,142 6,998 20,157
----------- ----------- ----------- -----------
Operating Income 86,096 70,756 207,944 144,838
Other Income 2,067 4,796 12,422 4,110
----------- ----------- ----------- -----------
Income before
Interest and
Taxes 88,163 75,552 220,366 148,948
Interest Expense 18,859 15,412 36,374 28,562
----------- ----------- ----------- -----------
Income before
Taxes 69,304 60,140 183,992 120,386
Provision for
Federal Income
Taxes 23,900 18,300 62,400 34,311
----------- ----------- ----------- -----------
Net Income $ 45,404 $ 41,840 $ 121,592 $ 86,075
=========== =========== =========== ===========
Basic Net Income
Per Share $ 1.15 $ 1.21 $ 3.13 $ 2.50
Diluted Net
Income Per Share $ 1.15 $ 1.20 $ 3.12 $ 2.48
Weighted Average
Number of Shares
(Basic) 39,336,577 34,532,597 38,848,234 34,494,643
Weighted Average
Number of Shares
(Diluted) 39,386,480 34,863,665 38,913,250 34,770,285
(a) The condensed consolidated statements of operations for the
three and six months ended June 30, 2003 has been
reclassified to conform to the 2004 presentation of certain
items.
Appendix 7
Summary Consolidated Balance Sheets
($000) June 30, December 31,
2004 2003
---------- ----------
Cash and Cash Equivalents $ 404,509 $ 74,003
Other Current Assets 92,553 67,420
Capital Construction Fund 254,659 247,433
Vessels, including Capital Leases 1,558,257 1,364,773
Investments in Joint Ventures 40,701 183,831
Other Assets 65,274 63,226
---------- ----------
Total Assets $2,415,953 $2,000,686
========== ==========
Current Liabilities $ 135,017 $ 98,208
Long-term Debt and Capital Leases 928,330 787,588
Other Liabilities 205,801 197,815
Shareholders' Equity 1,146,805 917,075
---------- ----------
$2,415,953 $2,000,686
========== ==========
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The Company plans to host a conference call at 11:00 AM EST on
Thursday, July 29, 2004 to discuss results for the quarter. All
shareholders and other interested parties are invited to dial
into the call, which may be accessed by calling (888) 802-8576
within the United States, and (973) 935-8515 for international
calls. A recording of the call will be available for one week at
(877) 519-4471, if dialed from within the U.S., and at (973)
341-3080 for international calls; the replay pin number is
4974013.
-------------------------------------
This release contains forward-looking statements regarding the
Company's prospects, including the outlook for tanker markets,
changing oil trading patterns, prospects for certain strategic
alliances, anticipated levels of newbuilding and scrapping, and
the forecast of world economic activity and world oil demand.
Factors, risks and uncertainties that could cause actual results
to differ from expectations reflected in these forward-looking
statements are described in the Company's Annual Report on Form
10-K.